Dear PP,
It's nice to see the Department of Justice looking out for the good of the consumer, but you're right, what really matters to most of us is whether or not these lawsuits will have a direct impact on the price of books. The DOJ's lawsuit is just starting, so let's start by getting a quick grasp on the news before we look at the possible end result.

Advertisement

Why Apple and Publishers Are Getting Sued in the First Place

The Department of Justice's case (which you can read for yourself via The Verge) accuses Apple and five major publishers of conspiring to raise the price of ebooks by creating a fixed price that all sellers have to use. The goal was to end Amazon's $9.99 price dominance and raise prices to the now standard $12.99-$14.99 for new ebook releases.

This came about because publishers worried that when Amazon sold books for cheaper than everyone else (at a loss to Amazon) it would set consumer expectation levels low and would make it difficult to sell books from other sellers—like Apple's iBooks—for the publisher's higher retail price. At first, publishers didn't have a lot of options to deal with this, but then Apple came in and offered the publishers agency pricing. The Wall Street Journal explains what agency pricing means:

It's a term for a new way of setting e-book prices that came about as Apple prepared to introduce its iPad in 2010. Under the traditional "wholesale" pricing model, publishers had long charged booksellers around half the cover price of a book, leaving booksellers to discount the books if they wanted.

When Apple entered the fray, it offered publishers the ability to set their own prices. Under the Apple arrangement, known as "agency pricing," publishers received 70% of the retail price and Apple took a 30% commission. But Apple also insisted that publishers couldn't sell more cheaply to any of its rivals. The publishers then were able to impose the same model on Amazon.

In a nutshell, this means prices on ebooks went up because the agreement with Apple made it so other sellers, like Amazon, couldn't lower the price on ebooks.

Three of the seven publishers have already settled with the Department of Justice, but Apple, Penguin, and Macmillan rejected the offer. Now that we know the reasons behind the lawsuit, let's see if any of this news is actually will have an effect on pricing.

We Might See Better Prices on Ebooks

This is a big win for Kindle owners, and we look forward to being allowed to lower prices on more Kindle books.

At least for Kindle owners (and Kindle app users), you're likely going to see decreases in the price of some books from time to time. To stay competitive, other sellers like Apple and Barnes and Noble will have to keep pace. Amazon is selling these ebooks either at a loss or with a thin profit margin, so books will probably have short sales times (like around a new release) and will regularly return to the retail price. The important thing, at least for consumers, is that publishers can't set a minimum price. This means Amazon can once again take a loss to sell you a copy of a book if they want.